CVS 2011 Annual Report Download - page 67

CVS CAREMARK 65 2011 ANNUAL REPORT
the dividends received and contributions from the Company
to repay the ESOP Notes. As the ESOP Notes were repaid,
ESOP Preference Stock was allocated to plan participants
based on (i) the ratio of each year’s debt service payment
to total current and future debt service payments multiplied
by (ii) the number of unallocated shares of ESOP Preference
Stock in the plan.
ESOP expense recognized is equal to (i) the interest incurred
on the ESOP Notes plus (ii) the higher of (a) the principal
repayments or (b) the cost of the shares allocated, less
(iii) the dividends paid. Similarly, the guaranteed ESOP obliga-
tion is reduced by the higher of (i) the principal payments or
(ii) the cost of shares allocated.
On January 30, 2009, pursuant to the Company’s Amended
and Restated Certificate of Incorporation (the “Charter”),
the Company informed the trustee of the ESOP Trust of
its intent to redeem for cash all of the outstanding shares
of ESOP Preference Stock on February 24, 2009 (the
“Redemption Date”). Under the Charter, at any time prior
to the Redemption Date, the trustee had the right to convert
the ESOP Preference Stock into shares of the Company’s
common stock. The conversion rate at the time of the notice
was 4.628 shares of common stock for each share of ESOP
Preference Stock. The trustee exercised its right of conversion
on February 23, 2009, and all of the approximately 4 million
outstanding shares of ESOP Preference Stock were converted
into approximately 17 million shares of common stock which
were recorded as treasury stock. As of December 31, 2011,
2010 and 2009, no shares of ESOP Preference Stock were
outstanding and allocated to plan participants.
10 PENSION PLANS AND OTHER
POSTRETIREMENT BENEFITS
Defined Contribution Plans
The Company sponsors voluntary 401(k) savings plans that
cover substantially all employees who meet plan eligibility
requirements. The Company makes matching contributions
consistent with the provisions of the plans.
At the participant’s option, account balances, including the
Company’s matching contribution, can be moved without
restriction among various investment options, including the
Company’s common stock. The Company also maintains a
nonqualified, unfunded Deferred Compensation Plan for certain
key employees. This plan provides participants the opportu-
nity to defer portions of their eligible compensation and receive
matching contributions equivalent to what they could have
received under the CVS Caremark 401(k) Plan absent certain
restrictions and limitations under the Internal Revenue Code.
The Company’s contributions under the previously mentioned
defined contribution plans were $187 million, $186 million and
$173 million in 2011, 2010 and 2009, respectively.
Other Postretirement Benefits
The Company provides postretirement health care and life
insurance benefits to certain retirees who meet eligibility
requirements. The Company’s funding policy is generally to pay
covered expenses as they are incurred. For retiree medical plan
accounting, the Company reviews external data and its own
historical trends for health care costs to determine the health
care cost trend rates. As of December 31, 2011 and 2010, the
Company’s postretirement medical plans have an accumulated
postretirement benefit obligation of $17 million. Net periodic
benefit costs related to these postretirement medical plans
were approximately $1 million for 2011, 2010 and 2009.
Pursuant to various labor agreements, the Company also
contributes to multiemployer health and welfare plans that
cover union-represented employees. The plans provide post-
retirement health care and life insurance benefits to certain
employees who meet eligibility requirements. Total Company
contributions to multiemployer health and welfare plans were
$47 million, $46 million and $47 million in 2011, 2010 and
2009, respectively.
Pension Plans
The Company sponsors nine defined benefit pension plans
that cover certain full-time employees. Three of the plans are
tax-qualified plans that are funded based on actuarial calcu-
lations and applicable federal laws and regulations. The other
six plans are unfunded nonqualified supplemental retirement
plans. All of the plans were frozen in prior periods, except
one of the nonqualified plans.
As of December 31, 2011, the Company’s pension plans
had a projected benefit obligation of $685 million and plan
assets of $463 million. As of December 31, 2010, the
Company’s pension plans had a projected benefit obligation
of $659 million and plan assets of $426 million. Actual return
on plan assets was $37 million and $45 million in 2011 and
2010, respectively. Net periodic pension costs related to
these pension plans were $49 million, $36 million and
$16 million in 2011, 2010 and 2009, respectively. The net
periodic pension costs for 2011 and 2010 includes settle-
ment losses of $25 million and $12 million, respectively, due
to the impact of lump sum payouts.
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